Building resilience to navigate uncertainty

How can you ensure your business is best set up to help you achieve the ambitions you have for it? One of the founding fathers of the United States, Benjamin Franklin coined the wellworn phrase ‘By failing to prepare, you are preparing to fail,’ and in terms of running a business, there may be no better guiding principle.

With Covid, the cost-of-living crisis, geopolitical uncertainty and high interest rates, businesses have had a lot to contend with in the last few years. Although signs point to inflation being tamed and interest rates coming down, there will always be challenges that test the resilience and resolve of business owners.

Covid’s impact on the economy was massive, with banks doing more than ten years' worth of lending volumes in just one year. It means one in three SMEs have become heavily indebted through no fault of their own and this has strained cashflow for many.

Against this backdrop owners must embrace creating resilience within their businesses by planning for an uncertain future. With Franklin’s adage in mind, there are three areas of their business that owners should consider ensuring they’re prepared for whatever the economy throws at them.

Routes to resilience

Financial resilience is probably the most important of the three; business can’t work without cash and capital. The cost of running your business will rise, so consider how you will cope with these increasing costs. It might be prudent to prepare for an environment where interest rates are higher for longer, for example.

Managing working capital and cashflow should be an ongoing process, especially during challenging times. Revenues will always be at risk, but knowing your customers and making it hard for them to leave reduces that risk.

Understanding a customer’s financials, cashflow, and pain points can help to improve customer service and retain them.

Building operational resilience relies on four elements – suppliers, people, technology and strategy – to help a company pivot when needed. For businesses with hard-wired, inflexible and intertwined supply chains, flexibility can be created by having multiple product lines, being less reliant on fixed costs and buying plant and machinery which is multipurpose or multifunctional. For the latter, business owners may require a new mindset when planning for change. Spending a little more and utilising financing options strategically would increase the company's ability to adapt.

Creating resilience is also about creating a workforce with the skills to pivot with the company when required. Successful businesses tend to rotate the workforce to increase their skills and understanding, readying them to adapt quickly if and when the firm needs to change direction. Leadership and personal resilience is inherent in SME owners, often demonstrated by their desire to start up, scale up and stay ahead in business. To strengthen business resilience though, you also need vision and the ability to learn quickly from setbacks.

Producing a resilience playbook

It's worth setting some time aside to work out a resilience playbook for your business. This can be any document containing clear, targeted and measurable short, medium and long-term actions that you can take to prepare your business for future challenges. You’re figuring out how you might mitigate risks or take advantage of potential opportunities. The most resilient businesses deliberately keep short-term and medium-term actions aligned with their long-term vision.

Remember: planning is not a way to predict the future, but rather a means to prepare for it.

Short-term actions could include identifying revenues that might be at risk and scrutinising discretionary spending, which is different for every business. Resilient businesses regularly consider this and are ruthless about stopping it if it is not directly contributing to their commercial objectives. For example, those with well-established brands can probably reduce marketing budget without too much impact but if you're a new business trying to gain a foothold in a market, it’s probably the last thing you should do.

For operational resilience, consider how you might build some flexibility amongst your staff to take on other roles within your business in the medium term. How could you also strengthen your core relationships? Long term, you might consider how you could invest for growth and introduce new pricing models. How can you invest in automation or in new skills, for example, to grow your business?

Working on solutions to potential business risks ahead of them happening will make your business more resilient. Let Franklin's famous words guide you: don't fail to prepare.